Market Update - August 2026

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Authors

Greg Smith, Investment Specialist

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Global markets




Global equity markets delivered a strong but occasionally volatile month in August, supported by robust corporate earnings, resilient economic activity and continued enthusiasm for artificial intelligence investment. Investors were periodically unsettled by inflation, government debt and geopolitical concerns, but ultimately remained willing to allocate capital to companies demonstrating dependable earnings growth and clear exposure to long-term investment themes. The MSCI World Index rose 2.5% in US dollar terms over the month.


The global economy continued to perform better than many had anticipated. August Purchasing Managers’ Indices pointed to improving activity across the United States, Europe and Japan, with services remaining an important source of strength and manufacturing showing renewed momentum. Artificial intelligence investment is also becoming increasingly visible in the real economy, supporting demand for semiconductors, data centres, power infrastructure, networking equipment and advanced manufacturing capacity.


Bond markets also became an important focus during the month after the US Treasury announced a significant expansion of its longer-dated bond buyback programme. The move was intended to improve liquidity and smooth conditions in parts of the Treasury market, but it also reignited debate around America's growing fiscal deficit and debt burden, which has now surpassed US$40 trillion. Investors responded by pushing the US dollar lower and driving gold prices sharply higher as concerns around fiscal sustainability and government borrowing requirements returned to the forefront.


Artificial intelligence remained the dominant structural investment theme. Early in the month, strong results from Microsoft, Amazon, AMD and Caterpillar demonstrated that AI spending is benefiting not only semiconductor and cloud-computing companies, but also businesses supplying the machinery, energy systems and physical infrastructure required to construct data centres. Later, Nvidia reinforced confidence in the theme by reporting rapid revenue growth and providing an exceptionally strong outlook, triggering a broad rally across semiconductor and AI-related companies.


However, August also highlighted that markets are becoming more selective. Investors rewarded companies able to convert investment into revenue, earnings and cash flow, while remaining less patient with businesses whose spending had yet to produce a clear commercial return. This increasingly discerning approach represents a healthy evolution in the AI investment cycle, with execution and profitability becoming as important as long-term potential.


Inflation and interest rates remained important sources of uncertainty. While energy prices eased during parts of the month and inflation data generally improved, tariffs, supply-chain disruptions and geopolitical tensions continued to complicate the outlook. Recent economic data suggests global growth remains resilient, but central banks remain cautious given inflation is still above target across many major economies.



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United States markets


US equities performed strongly during August. The Dow Jones Industrial Average rose 1.3% the S&P 500 advanced 2.6%, the Nasdaq gained 4.2%. Year-to-date returns remained equally constructive, at 10.7%, 12.3% and 16.7% respectively.


The US economy continued to demonstrate considerable resilience, although the data revealed an increasingly uneven picture. August business surveys were particularly strong, with the composite PMI increasing from 54.5 to 56.0, its highest level since April 2022. Services activity accelerated, while manufacturing remained supported by solid demand despite tariffs, shipping delays and supply constraints. The surveys were consistent with a meaningful acceleration in third-quarter economic activity from the 1.5% annualised growth recorded in the second quarter.


Second-quarter GDP was confirmed at an annualised rate of 1.5%, but the underlying composition was stronger than the headline suggested. Consumer spending was revised higher and business investment increased, while an important measure of underlying domestic demand grew at its fastest pace in more than three years. This reinforced the view that the US economy remains in relatively good shape despite elevated interest rates.


The consumer picture was more mixed. Retail sales declined 0.6% in July and consumer confidence weakened, suggesting some households are becoming more cautious. However, corporate results from Home Depot, Walmart, Target and Gap indicated that spending has not collapsed. Instead, consumers appear increasingly selective, prioritising value and essential purchases while delaying larger discretionary commitments. Elevated mortgage rates also continued to weigh on housing turnover and major renovation activity.

Inflation data provided some encouragement during the month. Consumer prices rose just 0.1% in July, while producer prices were flat. The softer readings initially reduced expectations of another near-term Federal Reserve rate increase. However, the Fed’s preferred inflation measure remained elevated, with annual headline Personal Consumption Expenditures inflation at 3.7% and core inflation at 3.3%. This left policymakers with limited scope to signal that the inflation challenge had been resolved.


Federal Reserve Chair Kevin Warsh reinforced this cautious approach at Jackson Hole, the closely watched annual central-bank symposium where policymakers often use speeches to communicate their views on the economy, inflation and interest rates. Rather than providing explicit guidance about the next interest-rate decision, he encouraged investors to focus on incoming economic data and warned that recent improvements did not yet demonstrate a decisive change in the underlying inflation trend. Bond yields rose following the address as markets interpreted the message as modestly hawkish.


The broader earnings season was also highly supportive for markets. With almost all S&P 500 companies having reported, approximately 86% exceeded earnings expectations and 77% exceeded revenue forecasts. The blended earnings growth rate for the second quarter reached 52%, representing the strongest earnings growth since the post-pandemic recovery period in 2021. While artificial intelligence remained a key driver of profit growth, the strength of earnings was evident across a broad range of sectors, reinforcing confidence in the resilience of corporate America despite ongoing economic and geopolitical uncertainties.





European markets


European equity markets produced mixed returns during August. The EURO STOXX 50 rose 1.0%, while the FTSE 100 declined 0.4%. Year-to-date, the indices remained up 10.9% and 9.0% respectively.


Economic activity showed encouraging signs of improvement. Eurozone business surveys rose to their highest level since November, with manufacturing recording its strongest expansion in more than four years. Germany was an important contributor to the improvement, while investment associated with technology equipment and AI-related infrastructure provided additional support to industrial activity.


The United Kingdom also continued to grow, although at a more subdued pace. Second-quarter GDP expanded 0.4%, down from 0.6% in the first quarter, as higher energy costs and Middle East-related disruption weighed on activity. Services remained relatively resilient, but the region continued to face elevated borrowing costs and cautious consumer demand.


Inflation remains the principal challenge for European policymakers. Energy costs, tariffs and supply disruptions continued to place upward pressure on prices, limiting the ability of central banks to contemplate rapid policy easing. The environment therefore remains one of modestly improving growth but persistent inflation uncertainty, favouring companies with pricing power, resilient margins and dependable cash flow.




Asian markets



Asian markets delivered mixed returns during August. Japan remained one of the strongest major markets, with the Nikkei 225 rising 3.0% during the month, and extending its year-to-date gain to 31.7%. Mainland China’s CSI 300 gained 0.8%, while Hong Kong’s Hang Seng Index declined 1.2%.


Japan continued to benefit from a weaker yen, improving export demand and investment in technology-related industries. Business surveys rose to their second-highest level in more than three years, while demand for semiconductor equipment, advanced manufacturing and data-centre infrastructure remained supportive. However, inflationary pressures also remained elevated, keeping the possibility of further Bank of Japan policy tightening in focus.


China’s economic recovery remained less convincing. Industrial profit growth slowed to 11.2% in July, its weakest pace of the year, reflecting subdued domestic demand and reduced support from earlier commodity-price gains. Technology-related industries, including electronics and semiconductor manufacturing, continued to perform comparatively well, but profitability across many traditional sectors remained under pressure.


The contrasting performances within Asia reinforced the region’s increasingly differentiated outlook. Japan continues to benefit from export demand, currency support and technology investment, while mainland China remains more dependent on improved domestic confidence and further policy support.



Australian markets



Australian equities produced a positive month, with the S&P/ASX 200 rising 1.1%. As at the end of June the index is up 4.15% year-to-date.


The Australian economy continued to present a mixed but broadly resilient picture. The Reserve Bank of Australia left the cash rate unchanged at 4.35%, but maintained a cautious tone, emphasising that inflation remained too high and that rate cuts were not under consideration. Later in the month, the RBA’s preferred trimmed-mean inflation measure remained at 3.6%, while household spending increased 7% over the year to July. The combination of broad inflation pressures and robust spending reinforced the possibility that further tightening could still be required.


The labour market showed clearer signs of cooling. Unemployment rose to 4.5% in July, employment declined by 15,800 positions and underemployment increased to a two-year high. The softer employment report reduced expectations of another immediate rate rise, but policymakers are likely to require more evidence that inflation and demand are moderating before ruling out further action.


Housing was another area of weakness. Australia’s major banks reported a broad slowdown in mortgage applications following higher interest rates and changes to property tax concessions. Westpac, Commonwealth Bank, ANZ and National Australia Bank all pointed to softer housing demand, particularly among investors. While current bank profitability remains relatively healthy, slower mortgage growth and greater competition for borrowers may make future earnings growth more challenging.


The corporate reporting season nevertheless provided several encouraging signals. BHP reported that copper had overtaken iron ore as its largest earnings contributor for the first time, reflecting growing demand associated with AI infrastructure, electrification and renewable-energy investment. Consumer-related results also suggested household demand remains more robust than many feared. Coles, Woolworths, Scentre Group and Qantas all reported continued spending or demand despite elevated interest rates and cost-of-living pressures. However, consumers remain value-conscious and increasingly responsive to promotions, while housing-related spending is considerably weaker.




New Zealand markets


The New Zealand equity market delivered a modestly positive August, with the S&P/NZX 50 Gross Index rising 1.3%, up 0.9% year to date.


The domestic economy continued to display a mixed but gradually improving picture. Unemployment increased to 5.6% in the June quarter, its highest level in more than a decade, confirming that higher interest rates have continued to weigh on the labour market. However, filled jobs subsequently rose 0.3% in July, while confidence surveys, tourism data and corporate trading updates suggested activity may be stabilising beneath the surface.


Business activity indicators were generally constructive. Manufacturing remained in expansion territory, while the services sector returned to modest growth. Tourism continued to recover, with overseas visitor arrivals reaching 3.67 million in the year to June and Australian arrivals exceeding 2019 levels. Consumer spending also improved in selected categories, although households remained cautious and value-conscious.


New Zealand’s export economy remained a notable source of strength. Goods exports reached $7.4 billion in July, 14% higher than a year earlier, supported by dairy, meat and horticultural products. Imports rose even faster, producing a $1.9 billion monthly trade deficit, but much of the increase reflected higher fuel costs and stronger imports of vehicles, machinery and equipment rather than weakness in export demand. Annual exports exceeded $84 billion, reinforcing the resilience of the primary sector.


The corporate reporting season provided some encouraging domestic signals. Vulcan Steel reported its first year-on-year increase in underlying volumes in four years, indicating that conditions across construction, manufacturing and infrastructure may be beginning to stabilise. Port of Tauranga exceeded expectations, while Fisher & Paykel Healthcare upgraded guidance following strong hospital demand and improving margins. Fletcher Building, Spark and The Warehouse Group also provided evidence that restructuring, cost control and balance-sheet repair are starting to produce tangible results.


The reporting season was not defined by booming demand. Instead, it demonstrated that New Zealand companies are increasingly adapting to challenging conditions rather than waiting for the economy to recover. Management execution, capital discipline and market-share gains became important differentiators, with several companies reporting stabilising volumes or improving trading despite continued pressure on households and domestically focused sectors.


Artificial intelligence and electrification were also prominent themes. Contact Energy’s proposal to explore a 250-megawatt data centre at Stratford illustrated the potential for AI and cloud computing to create a significant new source of electricity demand. Investments by Contact, Mercury, Meridian, Genesis, Vector, Infratil and Chorus demonstrate how New Zealand companies are beginning to position for increased demand for renewable generation, electricity networks and digital infrastructure.


Since month end, the Reserve Bank of New Zealand increased the Official Cash Rate by 25 basis points to 2.75%, a move that had been widely anticipated by financial markets. While interest-rate increases are typically viewed negatively by borrowers and investors, market reaction was relatively constructive. The accompanying Monetary Policy Statement was interpreted as less hawkish than some had feared, with policymakers emphasising that future decisions would remain data dependent rather than committing to a prolonged tightening cycle.


The Reserve Bank acknowledged that inflation remains above target and that further increases cannot be ruled out. However, easing inflation expectations, a soft labour market, subdued housing activity and evidence of spare capacity across the economy suggest policymakers are seeking to balance inflation risks against the need to support an emerging economic recovery. Bond yields declined following the announcement as investors scaled back expectations for the extent of future rate increases.


The decision reinforces the view that while monetary policy remains restrictive, the Reserve Bank is not seeking to tighten policy unnecessarily. Instead, incoming economic data will play an increasingly important role in determining whether further action is required over coming months.




Portfolio positioning


August reinforced the importance of maintaining exposure to durable structural growth themes while remaining disciplined around quality and valuation. Artificial intelligence continues to create significant opportunities across cloud computing, semiconductors and software, but its influence is increasingly extending into less obvious areas such as fibre connectivity, electricity generation, copper, engineering equipment and data-centre construction.


The breadth of the opportunity supports a diversified approach. The companies likely to benefit are not limited to the most prominent technology platforms. Businesses supplying power, cooling, networking, advanced manufacturing equipment and essential commodities may also experience sustained demand as the buildout continues.


At the same time, August demonstrated that high expectations leave little room for disappointment. Our investment team remains focused on businesses with sustainable competitive advantages, strong balance sheets, attractive long-term growth prospects and the ability to convert investment into earnings and free cash flow. In a market becoming more selective, execution and valuation discipline are likely to remain increasingly important.


Looking ahead - market outlook


Markets enter September with a constructive growth backdrop but a more complicated policy environment. Economic activity across the major developed economies remains resilient and corporate earnings have generally been strong. However, inflation remains above central-bank targets, energy and tariff pressures have not disappeared, and governments face growing scrutiny over debt levels and borrowing costs.


In the United States, investors will continue to assess whether robust activity and AI-related investment can support earnings without creating renewed inflation pressure. The Federal Reserve’s reduced emphasis on forward guidance means each inflation, employment and activity report may have a greater influence on markets.


China also remains important. A sustained improvement in domestic demand and industrial profitability would provide broader support to regional markets and global commodity demand. Until clearer evidence emerges, investors are likely to remain selective, favouring technology and export-oriented industries over businesses dependent on a rapid domestic recovery.


In Australia and New Zealand, the interest-rate debate remains finely balanced. Both economies are showing signs of resilience, but inflation has not moderated sufficiently for policymakers to relax. Household spending, employment, housing activity and business confidence will therefore remain important indicators of whether central banks can return policy towards neutral without undermining the recovery.


The broader investment narrative remains constructive. Artificial intelligence is increasingly influencing physical investment, industrial activity, commodity demand and electricity infrastructure, while corporate reporting seasons have demonstrated the value of strong management execution. August showed that economic growth is proving more durable than expected, but it also reinforced that investors are becoming more demanding. In this environment, diversification, selectivity and a continued focus on long-term fundamentals remain essential.





Market Update - September 2026

Categories

Authors

Greg Smith, Investment Specialist

Published


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Rates and bond yields moved higher, but resilient growth, strong earnings and continued AI investment kept equity markets broadly supported.

 

Market performance


Index

September

Year to date

S&P 500

-0.5%

+11.8%

Dow Jones

-4.3%

+5.9%

Nasdaq

+1.9%

+15.6%

FTSE 100

-2.0%

+6.8%

EURO STOXX 50

-2.4%

+32.6%

Nikkei 225

+0.7%

+32.6%

S&P/ASX 200

-3.2%

+0.9%

S&P/NZX 50 Gross

0.6%

+2.1%



Global markets




Global equity markets delivered mixed returns during September. The global economy remained relatively resilient, supported by solid labour markets, ongoing consumer spending and continued business investment. Technology-led indices generally performed better, underpinned by strong AI-related earnings momentum and capital spending, while more traditional and economically sensitive sectors were weaker as rising bond yields and tighter monetary policy weighed on sentiment. The result was a widening gap between technology beneficiaries and the broader market.


Geopolitics remained an important source of volatility. The United States and China extended their trade truce, although the strategic contest increasingly centred on artificial intelligence and technological leadership. Tensions with Iran also moved oil prices through a relatively wide range (Brent traded roughly between US$90 and US$110 a barrel) as markets assessed proposals to reduce risks around the Strait of Hormuz. Energy therefore remained the key link between geopolitics, inflation and central-bank policy.


The month was unusually busy for monetary policy. The Federal Reserve increased interest rates by 0.25 percentage points, while the Bank of Japan also tightened policy as it continued to move away from decades of ultra-loose monetary settings. The European Central Bank raised rates for the second time this year, citing renewed energy-driven inflation risks. Meanwhile, the Bank of England held its policy rate unchanged, although three of nine policymakers voted for an increase. Despite higher interest rates and bond yields, economic activity across most major economies remained reasonably resilient (as evidenced by PMI readings). These decisions reinforced the message that inflation had improved from its peaks but had not yet been fully contained.


One of the defining market moves during September occurred in bond markets. The US 10-year Treasury yield rose to 5.3%, its highest level since 2007, while the 30-year Treasury yield reached 5.6%, its highest level since 2002. The move reflected resilient economic growth, persistent inflation pressures and expectations that interest rates may remain higher for longer. Rising yields created headwinds for many traditional sectors and contributed to the divergence between technology-led markets and the broader equity market.


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United States markets



The US economy continued to outperform during September, although market performance was mixed beneath the surface. The S&P 500 declined 0.5%, while the technology-focused Nasdaq gained 1.9% and the Dow Jones fell 4.3%, reflecting the continued divergence between technology leaders and more traditional sectors.


Business surveys pointed to the strongest output growth since 2021 and consumer spending remained robust. Headline inflation remained elevated, but core inflation was more contained, suggesting that much of the renewed pressure was concentrated in energy and transportation rather than spreading evenly across the economy. Consumer confidence remained unusually weak relative to the strength of employment, spending, earnings and financial markets, highlighting a continuing disconnect between reported sentiment and observed activity.


The Federal Reserve increased its policy rate by 0.25 percentage points to 3.75%–4.00%, its first increase in three years. The decision was unanimous and Chair Kevin Warsh emphasised that inflation had remained too high for too long. Most committee members expected at least one further increase before year-end, keeping the path of policy dependent on incoming inflation and employment data.


Artificial intelligence remained the strongest corporate theme, and continued to broaden during September. Investor enthusiasm increasingly extended beyond the largest technology platforms and into the wider ecosystem supporting artificial intelligence, including digital infrastructure, semiconductor supply chains, networking and data-centre investment. This reinforced the view that AI spending remains in the early stages of a multi-year investment cycle rather than being confined to a small number of high-profile companies.


Valuation remains one of the key debates for investors. On a traditional price-to-earnings basis, the S&P 500 trades broadly around its long-run average on a forward basis. However, valuations appear more reasonable when adjusted for expected earnings growth. Strong profit growth expectations, particularly across technology and AI-related businesses, have kept growth-adjusted valuation measures below historical averages. While investors are rightly focused on elevated market valuations, the relationship between price and expected earnings growth remains more supportive than headline multiples alone would suggest.


That does not remove valuation risk, but it helps explain why equities remained resilient as bond yields rose: earnings expectations continued to grow faster than the increase in the cost of capital.


European & Asian markets



European equities weakened during September, with the FTSE 100 down 2.0% and the EURO STOXX 50 down 2.4%. Both remained positive year to date. Growth was modest but positive, while higher energy prices lifted inflation and complicated the policy outlook. The European Central Bank raised rates for the second time this year, while the Bank of England held at 3.75% despite a 6–3 vote that showed growing concern about inflation.


Japan continued to stand out, with the Nikkei 225 gaining 0.7% in September and 32.7% year to date. Performance continued to be supported by the country's strong exposure to technology and semiconductor companies, which remain important beneficiaries of ongoing AI infrastructure investment. The Bank of Japan raised its policy rate to 1.25%, continuing the gradual unwind of decades of ultra-loose policy.


Chinese equities were weaker: the CSI 300 fell 5.8% during September and the Hang Seng declined 3.7%. Economic releases remained mixed. Industrial activity and export orders showed signs of improvement, but the domestic recovery remained uneven and consumer demand was less convincing. The extension of the US–China trade truce reduced the immediate risk of escalation, although competition over technology and artificial intelligence remained unresolved.




Australian markets



Australian shares weakened during September, with the S&P/ASX 200 falling 3.2% and moving 0.4% lower year to date. Stronger-than-expected growth and a resilient labour market gave the Reserve Bank of Australia room to increase the cash rate to 4.6%, its fourth rise of the year. Policymakers said further increases remained possible, but also acknowledged that policy was already restrictive and that the cumulative effect of earlier tightening was still working through the economy.


Confidence indicators showed the pressure on households and businesses. The ANZ-Roy Morgan consumer-confidence measure fell as higher living costs and the prospect of additional rate increases weighed on households. Business confidence also remained below long-run averages, although firms reported some improvement in their own financial position and investment intentions.


The economy remained distinctly two-speed. Infrastructure, technology and mining investment continued to support activity, while households faced higher mortgage costs and subdued confidence. Employment rose by ~40,000 jobs in August, but unemployment also rose to 4.6%, the highest since late 2021, as workforce participation increased and part-time jobs accounted for much of the gain. This combination of persistent inflation and softer domestic sentiment left the RBA balancing the need for price stability against the risk of placing further pressure on consumers.




New Zealand markets



The S&P/NZX 50 Gross Index declined 0.6% in September but remained 1.0% higher year to date. New Zealand’s recovery continued to broaden, although the underlying data still pointed to an uneven, two-speed economy.


New Zealand's economy grew 0.2% in the June quarter, following 0.9% growth in March. The result was stronger than expected and highlighted the economy's resilience in the face of higher oil prices and global uncertainty. Growth was supported by construction and exports, particularly meat and dairy, although consumer-facing sectors remained weaker. Overall, the economy continues to recover, but the improvement remains uneven.


Business activity indicators were encouraging. The Performance of Manufacturing Index eased from 54.3 to 53.1 in August but remained comfortably above the 50-point expansion threshold, with growth becoming broader across industries. The Performance of Services Index also improved, rising from 50.6 to 51.2 and lifting its three-month average to the highest level since mid-2023. Together, the surveys were consistent with annual economic growth of around 2%, although the recovery remained gradual rather than broad-based.

Household confidence remained the softer part of the picture. The September source pack reports the ANZ-Roy Morgan Consumer Confidence Index at 97.6, broadly unchanged and still below its long-run average. Households reported modestly better personal finances, but spending intentions remained subdued. Inflation expectations provided some encouragement, with the two-year measure declining to 4.5%, its lowest level since March 2025.


Business sentiment however was considerably stronger. The ANZ Business Outlook showed headline confidence easing slightly from +53.7 to +51.9, while firms’ expected own activity held at +47.9. Inflation expectations were broadly unchanged at 3.25%, with manufacturing and construction performing relatively well while retail and services remained softer. The survey continued to point to a constructive but bumpy recovery.


The Reserve Bank of New Zealand increased the Official Cash Rate to 2.75%, but its more balanced and data-dependent message reduced expectations of an aggressive tightening cycle. Higher oil prices and global yields remain risks, while soft labour-market conditions, spare capacity and subdued housing activity argue for a measured approach.


Corporate updates were encouraging. Fonterra reported strong underlying momentum across its ingredients and foodservice businesses, an important result for New Zealand given dairy’s contribution to export earnings and regional incomes. The result also indicated that earnings generated since the Mainland divestment had recouped the earnings given up through the sale earlier than initially anticipated. Almost $20 billion has flowed back to farmers, shareholders and unit holders, providing meaningful support to regional New Zealand. Amongst the retailers, Hallenstein Glasson also delivered substantial profit growth and The Warehouse returned to profitability.



Portfolio positioning


September strengthened our view that the AI opportunity extends well beyond the best-known technology platforms. Demand is flowing through to memory, optical networking, semiconductor equipment, cloud infrastructure, power and data-centre construction. Exposure across this broader ecosystem can provide a more diversified way to participate in the theme.


At the same time, higher bond yields increase the importance of valuation and cash generation. We remain focused on companies with durable competitive advantages, strong balance sheets and the ability to translate investment into sustainable earnings. Active selection matters most when the gap between winners and losers is widening.


Looking ahead - market outlook



Markets enter October with growth still resilient but policy settings more restrictive. Investors will be watching whether softer inflation and employment indicators are enough to stabilise bond yields, or whether central banks need to tighten further.


Oil remains an important wildcard, particularly for inflation expectations. However, the global economy is less energy-intensive than it was during earlier commodity shocks, and corporate earnings have continued to absorb higher financing costs. The central question is not simply how high rates move, but whether profits can keep growing faster than the cost of capital.


For long-term investors, the backdrop remains constructive but selective. Diversification, quality and valuation discipline remain essential, alongside exposure to structural themes that can continue to grow through a changing economic cycle.


Official Source Index 

The links below point to official data, research and monetary-policy pages referenced in this market update. 


Disclaimers